INTERNATIONAL: MEDIA OWNER PROFILE; Bertelsmann must catch up in the digital television race

Bertelsmann just can’t seem to make an impact in the German TV market, Alasdair Reid writes

Bertelsmann just can’t seem to make an impact in the German TV market,

Alasdair Reid writes



Commentators are always quick to deride Bertelsmann’s efforts to become

a major force in European broadcasting. They point in particular to

faltering efforts in its home market in Germany. One of its television

channels, Vox, was on the verge of bankruptcy two years ago before

Rupert Murdoch was invited to step in and take control; another, the

massively profitable RTL, is a success largely because of the efforts of

its other major shareholder, CLT.



Now Bertelsmann looks as if it has fallen behind in the race to launch

digital services in Germany, and efforts to merge its broadcasting

subsidiary, Ufa, with CLT in a strategic European alliance have run into

trouble. Last month, Michel Delloye, CLT’s chief executive and the man

responsible for hammering out the initial deal, resigned after

disagreements about who was to manage the joint venture.



Even worse, last week Bertelsmann’s arch-rival, Kirch, joined forces

with Rupert Murdoch’s BSkyB to set up a joint pay-TV venture to launch

17 channels in Germany. The new venture has one million ‘D-box’ set-top

decoders ready to go to market, whereas Bertelsmann’s 100,000 MMBG boxes

ordered earlier this year are not yet ready. Neither are programme

plans; and Kirch, which owns one of the world’s biggest programming

libraries, is ahead in this area. Ironically, the station best suited to

digital upgrade, the pay-TV channel, Premiere, is jointly owned by CLT,

Bertelsmann and Kirch, and none of the sides is keen to let it become

the centrepiece of its rivals’ plans.



Bertelsmann, say the critics, may be one of the world’s biggest media

owners, but historically it is a print-based company and it hasn’t quite

managed to get the hang of television. Two thirds of Bertelsmann’s

dollars 539 million worldwide profits last year came from publishing and

related activities. Through Gruner and Jahr it is a major magazine

publisher, owning the Bantam Doubleday Dell book-publishing group, and

it is the world’s biggest operator of book clubs, including BCA in the

Britain. It is a force to be reckoned with in music publishing too,

owning RCA and Arista Records and running a host of CD clubs around the

world.



So why does it find broadcasting so difficult? Most analysts point to

its corporate culture. Bertelsmann is a bureaucratic and stolid

corporation, managed by committees that hate taking risks. One senior

television executive said recently that negotiating with Bertelsmann is

‘like wading through porridge’. Its approach is personified by its

chairman, Mark Wossner, who is described by one insider as ‘reserved and

formal, a businessman with old-fashioned German virtues’.



No-one, though, should underestimate Bertelsmann or its determination to

succeed. The digital race is likely to be a marathon rather than a

sprint and the Ufa-CLT merger could be the most important factor in its

outcome. The deal is currently being investigated by both German and

European monopolies watchdogs, but if it goes through it will begin to

simplify a complicated web of relationships between Europe’s major media

owners.



One of CLT’s largest shareholders, for instance, is Havas, which owns

Canal Plus, a world leader in subscription television. Canal Plus is

about to launch digital services in France. But CLT recently signed a

deal with a consortium of French channels, including the biggest, TF1,

to develop a rival digital offering. In turn, Canal Plus and Bertelsmann

are joint-venture partners in a company called Newco, set up recently to

develop digital broadcasting opportunities across the whole of Europe.

(BSkyB had also been a partner in Newco, but it left recently to seek

other alliances, resulting in the partnership with Kirch.) Both Canal

Plus and CLT are shareholders in MMBG.



Confused? You will be - and it will probably get more complicated before

it starts to resolve itself. Wossner is currently trying to play a

delicate diplomatic game - particularly in trying to keep links with

Canal Plus, despite CLT’s French manoeuvres.



The merged Ufa-CLT company will have a majority shareholding in

Premiere, which could mean that it ends up on the MMBG digital package

whether Kirch likes it or not. The merger would also underwrite

ambitious programming plans at RTL - already Germany’s most popular

channel - and clear the way for it to become the jewel in the MMBG

crown.



The German digital race is vitally important to Bertelsmann’s broadcast

strategy. The winners in Germany will be able to export the lessons

learned to the other major European markets, whose digital development

has been proceeding at a slightly slower pace.



But technology is one thing, content is another. The company that

controls the digital television business will be best placed to dominate

all facets of the media market well into the next century, but the

battle will have far more to do with programming than with set-top

decoders.



Can Wossner succeed in his aim to control the digital television

business in Germany, and export this to the rest of the world? Some say

that it will be a bit like British Satellite Broadcasting versus Sky in

the early days of UK satellite broadcasting - a compromise or merger is

inevitable. But it will take nerve. Cautious Bertelsmann has just

embarked on the riskiest venture in its history.



Bertelsmann worldwide



Broadcast



Its Ufa subsidiary has shareholdings in several German television

channels including 39 per cent of RTL, 8 per cent of RTL2, 24.9 per cent

of Vox, 37.5 per cent of Premiere, 25 per cent of CBC Cologne. It is a

leading player in the MMBG digital TV system. It has stakes in the

Luxembourg channel, Fratel, and Tele Monte Carlo. Ufa also has

television production studios in Berlin, Hamburg, Cologne and Budapest,

and a German regional radio network. A merger with CLT will give Ufa

stakes in Channel 5 (UK), M6 (France), RTL4 and RTL5 (Holland).



Magazines



Gruner and Jahr divisions in Germany (top titles include Stern, Brigitte

and Geo) and throughout Europe. McCall’s and Family Circle in the US.

Six regional newspapers in Germany.



Books



Bantam Doubleday Dell worldwide. Authors include John Grisham and

Danielle Steel.



Music



Arista Records and RCA.



Business Publishing/Books/cd clubs



Trade magazine divisions in Europe plus technical books and online

information services. World’s largest operator of book clubs, including

BCA in the UK. Bertelsmann also has a home video sales and distribution

business and an interactive CD-Rom publishing division. Its 50/50 joint

venture with America Online is a European web service provider set up to

rival Compuserve and Microsoft.



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